EUR/USD is making its way higher in a corrective channel, a little too steeply for a sustainable run, but nevertheless, the pair remains better bid on the 1.13 handle.

EUR/USD is currently trading at 1.1325, up from a low of 1.1319, and below the highs of 1.1367, losing sight of the 50% Fibo retracement of the late Jan highs to recent swing lows.

A weak German Manufacturing PMI wasn’t enough to drag EUR lower as French services rebounded, however, the Governing Council’s decision to pivot the balance of risks to the downside were confirmed in the ECB minutes and concerns over the eurozone economy are deep-rooted.

However, today’s encouraging confidence indicators should prevent the central bank from twitching at the March meeting. Analysts at ING Bank explaind, “regarding the most pressing issues for the ECB, i.e. the macro assessment, new TLTROs and the future path of the monetary policy, the minutes revealed some interesting details:

The ECB is struggling to see if the current downswing is transitory or something a bit more permanent and will wait until the March meeting, when the new ECB staff projections will be available, hoping for more insights.

Regarding the option of new TLTROs, the ECB felt that ‘some consideration should be given to the outlook for liquidity conditions in the banking sector, as the redemptions of outstanding targeted longer-term refinancing operations were approaching, which might give rise to “cliff effects”’.

The sentence ‘While any decisions in this respect shouldn’t be taken too hastily, the technical analyses required to prepare policy options for future liquidity operations needed to proceed swiftly’ shows that the process to come up with some options has started.

As far as the Fed goes, we had a mostly dovish outcome form the FOMC minutes yesterday, and the details on the balance sheet should keep the USD on the back foot, reinforcing topside resistance in the DXY. However, the reaction was relatively muted as the Fed speak of late has mostly telegraphed this shift, leading to some modest retracement in the FX market on the release.

On the trade front analysts at Deutsche Bank noted that Bloomberg reported that the US and Chinese negotiators are working on multiple memorandums (6 in total as per Reuters) of understanding that would form the basis of a final trade deal and the MoUs are likely to cover areas including agriculture, non-tariff barriers, services, technology transfer and intellectual property:

“The report also added that the enforcement mechanism for the MoUs remains unclear as of now, but would likely be a threat of re-imposition of tariffs if conditions aren’t met and also indicated that China’s Vice Premier Liu He is likely to meet with President Trump on Friday. As a reminder China Vice Premier Liu He is set to meet Lighthizer and Mnuchin today. Elsewhere, President Trump reiterated his threat to impose tariffs on cars imported from the EU if the US can’t reach a trade deal with the EU. He said that “If we don’t make the deal we’ll do the tariffs. We’re trying to make a deal. They’re very tough to make a deal with, the EU.”

EUR/USD levels

Analysts at Commerzbank explained that EUR/USD is continuing to recover from the 1.1216 November low.:

“A near term rally is currently being seen, this preserves the range and leaves the 1.1518 200 day ma back in the picture. Below 1.1216 will target the 61.8% Fibonacci retracement of the 2017-18 advance at 1.1186.”

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